“Key person” is a business-planning label, not a promise that a policy will solve every disruption. The useful first question is: what specific financial problem would the business face if this person died?
Identify the dependency
A business may depend heavily on a founder, specialized employee, relationship manager or licensed professional. The dependency might involve revenue, client trust, technical knowledge, leadership, a loan agreement or the ability to complete a project. Describe what would change in the first month and what could remain difficult for a year.
Define a purpose before discussing an amount
Possible planning questions include the cost of recruiting and training a replacement, temporary operating support, a period of reduced revenue, debt obligations or a transition plan. These are planning categories, not automatic policy benefits. Estimate each separately and ask how an amount was calculated.
Understand who would own and receive the policy
Before any application, the business and its advisers should clarify who would own the contract, who would pay premiums, who would be insured, and who would receive any proceeds. The arrangement must be consistent with the business purpose, the policy, applicable law and any lender or ownership agreements. Consent and insurable-interest rules can apply; get state-specific legal guidance.
Review the contract and operating plan together
Compare the proposed coverage period and amount with the business need. Ask how premiums may change, what is guaranteed, what happens if a premium is missed, and what policy changes are available. Keep the continuity plan current as roles, debt, ownership and staffing change.
Questions to take to the conversation
- What would happen to revenue, customers, debt and daily decisions if this person were unavailable?
- Who would control the policy and receive proceeds?
- How does the proposal fit the company agreement, loan documents and succession plan?
- Which legal, accounting and insurance professionals need to review the structure?
- What is the plan if coverage is unavailable, delayed or different from the estimate?
Life insurance terms and tradeoffs vary by policy. The NAIC’s consumer life insurance guide explains common policy types and questions to ask. For the broader business-transfer picture, see the SBA’s ownership-transfer and business-management resources.
Keep the decision connected to the real need
Insurance can be one funding tool within a larger plan. Start by describing the business risk in plain language, then have qualified professionals determine whether a policy structure is appropriate.